Thai Oil

Thai Oil Plc
- Aromatics remains major threat
The overall business of TOP in 2014 is still pressed by the aromatics business.
Px spread has entered a downtrend from a significant increase of 5.5 million
tons a year in supply against the demand growth of only 2 million tons a year.
Moreover, the spread would get narrower in the next couple years as a result
of a new Px supply of 4.7 million tons in 2015 that will cause an oversupply
problem. Px-ULG95 spread is standing currently at US$170/ton, which is a
record low in three years; previously in 2008 and 2010, the spread slumped
to US$150/ton due to the layman’s financial crisis and the Eurozone debt
crisis, respectively. Accordingly, from now on aromatics producers might
reduce or temporarily stop their production in order to decrease the supply in
the market and to prevent Px spread from a further fall. However, TOP will
benefit from recovering GRM in 2014; despite emerging refineries, the new
supply will be negated by a permanent closure of refineries in Japan, China,
and Australia. Consequently, net new supply is projected at only 670,000
barrels a day, versus the demand growth of 950,000 barrels a day.
- 2Q14 is the bottom of the year
We project 2Q14 to be the worst quarter of the year due to the following
reasons: 1) Px-ULG95 spread tends to weaken 33.8%qoq; 2) A 55-day major
overhaul of CDU-3 distillation unit with a total capacity of 165,000 barrels/day
during June 15 to August 8 would make the utilization rate of the refinery and
aromatics factory lower from 105% and 93% in 1Q14 to 80% and 60%,
respectively. Moreover, the utilization rate would remain low in 3Q14 before
normalizing to 100% and 90%, respectively, in 4Q14. For FY2014, the profit is
projected to decline 25.2%yoy to a six-year low.
- Hold for dividend
2014 fair value (DCF) is B56. We reiterate to hold TOP for dividend. 2014-
2015 dividend yield can be expected at 3-4%p.a. (paying semi-annually).